HUGE BANK TRAP: The $6k trick you don't want to fall for

Interest rates have never been so low, nor for so long, but whether they stay there or keep falling, there is one question on the minds of most buyers and mortgage holders: Should I fix my rate?

Some of Australia's big banks are now offering the lowest mortgage rates in history on the back of two 0.25 basis point cuts by the Reserve Bank of Australia earlier this year.

But more cuts are predicted, which could mean borrowers who take advantage of the offers to fix that many financial institutions are spruiking now could end up paying $6000 a year more than people who lock in their rate in 12 months' time.

"Don't act in haste, but be diligent, don't expect the lenders to call you to say the rates are still coming down," Mortgage Choice's Deslie Taylor told news.com.au.

"The majority of my clients feel as though rates are at an all-time low, and they are, but they feel as though they're not going to get any lower.

"That's where I'm educating them saying, chances are the big banks are all going to follow suit and (The RBA are) advising there's going to be more rate cuts."

She said a 0.25 per cent rate cut could make a difference of $3000 a year on a $400,000 home loan. If there are two cuts - which is what is predicted in the next 12 months - the difference could be $6000, roughly a trip to Bali.

"The clients I'm talking to right now that are coming off their fixed rate, who are talking about renewing and fixing, my advice is to stay on a variable rate," she said.

"If you'd fixed in before the cut that's $3000 that you've lost for paying that little bit more."

Despite the banks' push to get customers to fix their rates, it does appear borrowers are waiting for a better offer. Last year, when rates were tipped to rise, about 22 per cent of all new home loans written were on fixed rates, up from 19.4 per cent in 2017, according to Mortgage Choice data.

Recent data shows this has fallen back to only 14 per cent of all loans written.

Bank of Melbourne, Bank SA and St George are hoping to entice more people to lock their rates, with all three now offering fixed home loan rates at under 3 per cent.

Owner occupiers with a loan to value ratio (LVR) of up to 60 per cent can access a 2.94 per cent fixed rate, while those with an LVR of 80 per cent can still borrow at 2.99 per cent.

St George is offering fixed rate loans under 3 per cent for the first time. Picture: Supplied

So why are home loans getting so cheap? Canstar's finance expert, Steve Mickenbecker, told news.com.au falling bond rates, as well as interest rates, play a big part.

"The reason they're passing on incredibly strong cheap loans now are that the bond rates have fallen so dramatically at the 10-year end of the yield curve," he said.

Australian 10-year bonds have fallen to a yield of 0.93 per cent, whereas inflation is currently running at 1.6 per cent and the RBA interest rates at 1 per cent, which is the market's way of suggesting interest rates will continue to fall.

The Reserve Bank slashed the official cash rate to 1 per cent in July, warning in the minutes from its August meeting rates may go lower and stay there "to make sustained progress towards full employment and achieve more assured progress towards the inflation target".

But the fortune tellers of Australia's housing and business market are tipping more cuts ahead, and a view overseas looks even less encouraging.

Just this week Denmark's third largest lender, Jyske Bank started offering a 10-year fixed rate mortgage that would PAY borrowers 0.5 in negative interest. This means a borrower paying $1 million would only pay back $995,000.

But Mr Mickenbecker said anyone thinking they could pick the bottom of the market was kidding themselves.

"The thing about fixing today is that there could still be that same opportunity to fix favourably for the next 12 months," he said.

"You can take it either way. You can be sitting on a very nice variable rate and still find you have that opportunity in 6-12 months' time to fix at the still favourable rates, but no one has that crystal ball."